09 September 2010

In 1996, Krugman had an entirely different view of long-term structural changes to federal entitlements, including raising the age of eligibility. In a lengthy New York Times book review of “How the Coming Social Security Crisis Threatens You, Your Family, and Your Country” by Peter G. Peterson and “America’s Most Powerful Lobby and the Clash of Generations” by Charles R. Morris, Krugman targeted the very kind of short-term politicization of the entitlement/demographic crisis that he now indulges in. Close your eyes, read Krugman’s words circa 1996, and you might think you were listening to Paul Ryan circa 2011:

“Generous benefits for the elderly are feasible as long as there are relatively few retirees compared with the number of taxpaying workers — which is the current situation, because the baby boomers swell the workforce. In 2010, however, the boomers will begin to retire. Every year thereafter, for the next quarter-century, several million 65-year-olds will leave the rolls of taxpayers and begin claiming their benefits.

The budgetary effects of this demographic tidal wave are straightforward to compute, but so huge as almost to defy comprehension. Mr. Peterson, the chairman of the Blackstone Group, a private investment bank, informs us that ”the combined Federal cost of Social Security and Medicare, expressed as a share of workers’ taxable payroll, is officially projected to rise from the already burdensome 17 percent in 1995 to between 35 and 55 percent in 2040. And this figure does not include the many other costs — from nursing homes to civil service and military pensions — that are destined to grow along with the age wave.”

But aren’t Social Security and Medicare basically pension funds, in which workers’ contributions are invested to provide for their retirement? Hardly. A private pension fund that planned to pay the benefits these programs promise would be accumulating huge reserves. In fact, the so-called ”trust funds” are making barely any provisions for the future. In another spectacular statistic, Mr. Peterson notes that if Medicare and Social Security had to obey the same rules that apply to private pensions, the reported Federal deficit this year would be not its official 150 billion dollars, but roughly 1.5 trillion dollars.

In short, the Federal Government, however solid its finances may currently appear, is in fact living utterly beyond its means. While the present generation of retirees is doing very nicely, the promises that are being made to those now working cannot be honored.”

“Both Mr. Morris and Mr. Peterson offer plans to avert the crisis ahead. The details differ, and Mr. Peterson’s proposal is more completely fleshed out, but the general thrust is clear: slow the growth in benefit levels, gradually raise the retirement age, impose limits on expensive terminal medical care that prolongs life for only weeks or days and — last but not least — raise taxes moderately now, rather than massively later. We need not dwell on their sensible proposals, however, because there is not the slightest prospect that they will be put into effect — or indeed that we will do anything serious about the looming crisis until it is almost upon us.

Thanks to finger-in-the-wind demagogues like 2011-era Krugman, the obstacles to lasting entitlement and budget reform have grown even more insurmountable than they were 15 years ago when 1996-era Krugman took them seriously.

http://www.theatlantic.com/past/docs/issues/96may/aging/age2.htm

Now that Professor Krugman has become a Nobel Laureate, he has become a very serious thinker and eschewed his former positions on Social Security and Medicare. No longer are they unsustainable. No longer in privatisation or increasing the retirement age sensible actions to shore up the programmes. No, my dear! What we have to do to ensure that Social Security and Medicare will be around for your great-great-great-great-great-great-great-great-great-great-great-great-great-grandchildren is to have the government lie to the populace and claim that we have been invaded by space aliens. Yep! That'll do it!